Just starting out, what's the move?

Question

Background:

Currently FHA financed on a SFH where I live. Bought for $125k, remaining balance $60k, appraisal should be $175k. Currently pre-approved through the VA for $400k but lender said $500k is an easy reach. I would like to get a 2-4 unit multi-family, but the ones that are more common in my area are low quality. Thinking of buying a SFH that we will live in permanently and renting my current home which should cashflow $500 a month easily. My goal is to have properties that are paid off cash flowing $6000+ monthly as retirement income to replace our W2s. We live in a coastal town on the Mississippi coast which could do well with a STR if I can find the right property. I actually found a great STR property for a friend last year and he is killing it with STR. Would love to hear input, thanks in advance.

Conner Olsen · Answer

@Joel Case I totally understand where you're coming from and I have the same internal debate of a few paid off properties or multiple properties with mortgages. For me, I decided to split up my investing journey into two chunks, one for growth and one for loan paydown. I am going to acquire 5-7 properties as quickly as possible and then pay them off one by one. I think it's important to get the properties quickly to get more time in the market before starting to pay them down. I have learned is that paying off the properties early is more of an emotional decision than a financial one so as long as it's worth it to you I say go for it!

Joel Case · Answer

@Colton Hahn do you have any tips for us VA loan users on using it right? I am guessing you are referring to house hacking every year? Would love to hear some input.

Colton Hahn · Answer

VA Loans are so powerful, before working for a multifamily syndicator I originated mortgages for a company that specialized in VA Loans. Being able to use one is such a blessing, and can unlock some serious wealth if used right :)

Johann Martinez · Answer

Hey Joel!

I'm also new to the real estate space, but I think what Karl McGarvey is trying to imply is you're going to be allotting most of your CF and your refinanced funds into a home that can only make you so much money(cf). Your refinanced money is free money, after paying off its previous mortgage of course, and instead, you can use your new capital to purchase more properties within the 2-4 unit range using the BRRRR method. Reviewing your post, you said you want to live off your CF, which is the goal for everyone, am I right? of course, who wouldn't want to; If you have no intention of retiring within 10years, then you should try to scale as much as possible and allow your rentals to pay down the mortgage over time. While in the meantime, you can also be doing house hacks for that higher chance of appreciation to come into effect. If you are worried about these properties becoming more of a headache than the passive income, I suggest you look into a good property manager and try to strike a deal with them to help you scale, and in return, you use their services. I recommend you try reading Brandon Turner's book called "The Multifamily Millionaire" volume 1. Also, from what I've heard, STR tend to take more work and require a bit more knowledge to do them successfully, but having someone who has already done them is a big bonus. Also, remember that you can only receive up to 10 loans from Fannie Mae, so once you reach that threshold, you will need to discover new ways to raise capital.

Karl McGarvey · Answer

Maximizing cashflow but your ROI goes down. Maximize your ROI through leveraging. One house at a time is not that many moving parts and will drastically accelerate your timeline and returns longterm.

Karl McGarvey · Answer

House Hack!!!!

Use the VA Loan or a low money down conventional to get into a house a year. Use the cashflow from your other properties to fund the next down payment. In 10 years you have 5-10 properties and start paying them off while also using their cashflow to fund your forever home.

Joel Case · Answer

Conner, thanks for the response, I think you really hit the nail on the head and your point about acquiring fast is something I haven't thought about at this point. It sounds like our strategies are very much aligned. For me and my retirement, I think 5-7 fully paid off doors puts me in a very good position. That doesn't mean that will be the end of my real estate journey, that's just the safety net I want and the sooner I get there, the sooner I can kick my W2 to the curb.

Joel Case · Answer

Hey Johann! I have the BRRRR book, but I haven't cracked it open yet, right now I am in the middle of The Book on Rental Property Investing and working my way through the BP recommended readings, so I still have a lot to learn. My intention IS retiring in ten years, possibly fifteen tops. I intend to house hack along the way, and with my VA loan, I can use that as many times as I like, so the Fannie Mae concern is a non-issue thankfully. I intend to self-manage the properties as I am more hands-on. The worries I am concerned with are more of the cost of maintenance items if I had more properties versus fewer properties, but I am coming around to the fact that if the numbers work and I buy right I should have no problem maintaining a profit. I am very interested in multifamily, but where I live they seem to be a bit harder to come by. I have seen a few duplexes over the years hit the market that I would consider. Thanks for the book recommendation, I hadn't seen that one recommended before.

Joel Case · Answer

To maximize cash flows with less moving parts.

Just starting out, what's the move?

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